State Bankruptcies Up 20%; Two-Thirds Are in Southland

Pushed by mounting consumer debt, the total number of bankruptcy filings in California rose 20% in the first seven months of the year to 87,000, with Southern California accounting for nearly two-thirds of that, according to a new report.

Statewide, the number of business bankruptcies rose just 2.9% through July to about 9,500 compared with the same period last year, according to CDB-Infotek, a Santa Ana public data research firm.

The state’s slow-but-steady economic recovery has helped keep business filings in most areas from rising much at all, said Jack Kyser, chief economist of Economic Development Corp. of Los Angeles.

“Things are better for business than they’ve been in a long time,” said Lawrence Hilton, a bankruptcy lawyer at the Newport Beach office of the O’Melveny & Myers law firm. “Interest rates are lower than a few years ago, so we’re not seeing the kinds of cash flow and debt service problems that we used to see. And with consumer confidence increasing, people are buying more, so businesses are selling more.”

The exception was the city of Los Angeles, where business bankruptcy filings jumped 25%, Kyser said. He believes the large number of entrepreneurial companies in Los Angeles, many of which always teeter on the edge of insolvency, is one reason for the high rate. “Some of them should have filed earlier,” Kyser said. “They just hung on too long and weren’t able to take advantage of the recovery when it started.”

Excluding Los Angeles, business filings in the rest of the state rose just 1.5%.

Some economists and bankruptcy attorneys chalk up the big jump in total bankruptcy filings to growing acceptance of bankruptcy as a money management tool rather than a sign of economic collapse.

“The stigma is gone,” Kyser said. “People are no longer afraid to file.”

In Los Angeles County, the total number of bankruptcies was up 45%, to 26,213 versus 18,076 in the first seven months last year--the biggest increase of any of the state’s urban counties. CDB reported a 17.8% rise in San Diego County and an 8% increase in the Inland Empire filings, most of that in Riverside County.

Orange County, with a 13.1% decline in the number of bankruptcies filed in the first seven months of the year versus the same period last year, would seem to have bucked the statewide trend. A closer look at the numbers, though, shows that although the number of filings fell 37% in the first quarter compared with the year-ago level, the number began to rise in the next four months. From April through July, the CDB report shows, filings in Orange County rose 4% over the same period last year. A flood of 1,180 filings made July the busiest seventh month for the Santa Ana U.S. Bankruptcy Court branch since 1992.

As is the case in the rest of the state, about 90% of Orange County filings are for personal bankruptcies. Most of those are brought about by heavy credit card and other consumer debt, lawyers said.

“It has gotten so bad that many people don’t even wait to go into default before they file,” said Marc Winthrop, a Newport Beach bankruptcy specialist. “I’ve seen cases where people have looked at their bills and their debt load and decided to file even though they hadn’t ever missed a payment.”

In the Bay Area, where the economy has been in recovery for several years, San Francisco enjoyed a 1.6% decline in filings and Santa Clara County saw a drop of just under 1%.